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Income Tax Income tax is a tax upon income made in Germany. The tax is progressive and is staggered between 14% and 45%. On the right, the table shows the tax rates for 2014.

There are two types of income tax: 1. Tax on Wages (Lohnsteuer): withdrawn at source. 2. Tax on Income (Einkommensteuer): paid directly in quarterly installments by the taxpayer.

TAX

Tax % Tax Base (EUR)

0% Up to 8,354 14% 8,355 - 52,881 42% 52,882 - 250,730 45% 250,731 and over

IP Global recommends speaking to a tax advisor as German tax law is very complex. The below information is provided as an indication of tax payable on rental income. It is not exhaustive and is focused on tax for individuals.

Rental income is calculated as per the above table although there are a number of deductions which can be taken into account such as interest on loans, management fees and depreciation.

Depreciation Real estate (excluding land) is subject to tax depreciation on an annual basis for 40-50 years. Any buildings constructed after 1925 are subject to a 2% annual depreciation. Special rates apply to the modernisation of listed buildings (Denkmalschutz).

In addition to the income tax itself there is a solidarity charge of 5.5% also imposed on the levied income tax (i.e. not the taxable income).

Capital Gains Tax If the property is held for over 10 years then there is no capital gains tax to be paid.1 Should the property be sold within 10 years then the gain will be levied at the same rate as the income tax.

VAT (Umsatzsteuer or Mehrwertsteuer) Certain goods and services such as furniture pack installation and estate agency fees are subject to VAT. This is levied at 19% on goods and services although certain products are charged at a lower rate such as books, staple food and public transport tickets.

1Subject to the individual owning not more than 3 real estate assets in Germany